Beware of Obama's 'Battery Gold Rush'

Beware of Obama's 'Battery Gold Rush'

A lot of smart people -- Warren Buffett, Andrew Grove, Nissan’s Carlos
Ghosn -- believe that electric cars will be a big answer to our climate
and energy problems. GM and Ford have apparently come around to that
view as well, and even Chrysler recently released a cool little
neighborhood vehicle called the Peapod (see photo at left).

I’m impressed by BYD, the Chinese battery and electric car company, and by Better Place,
Shai Agassi’s bold electric-car startup aimed at transforming the
global automobile industry. Batteries are the key to making electric
cars affordable. So why did this Wall Street Journal headline make me cringe?

Obama Administration Sparks Battery Gold Rush

Companies, States Vie for $2.4 Billion in Funding Aimed at Turning U.S. Into Top Maker of Fuel Cells for Electric Cars

The story went on to say that the Department of Energy has received
165 applications from companies seeking some of that $2.4 billion.
which is “aimed at turning the U.S. into a battery-manufacturing
powerhouse.” The Journal’s William M. Bulkeley reports:

"Companies vying for the federal money include General
Motors Corp., Dow Chemical Co., Johnson Controls Inc. and A123 Systems,
a closely held battery maker backed by General Electric Co. and others.
States including Michigan, Kentucky and Massachusetts are also weighing
in with applications, usually in alliance with their favored battery

"When the winners are decided, as soon as the end of July, the Energy
Department may anoint Livonia, Mich., or Indianapolis or Glendale, Ky.,
as the future U.S. hub of car batteries."

Reading carefully, it’s clear that The Journal (“free people, free
markets”) is not happy about this news. Note the use of the word
“anoint,” hinting that the government is assuming divine powers. The
article characterizes the DOE grants as “one of the government’s
biggest efforts at shaping industrial policy” -- fighting words in

They’ve got a point, though, don’t they? One unhappy result of all
the bank bailouts of the fall is that $2.4 billion doesn’t seem like
much -- hey, Citi alone has collected north of $45 billion, last time I
checked -- but a billion here, a billion there, and you’re starting to
talk real money. And if electric cars are going to be as big a business
as a lot of people think, then why should government investment be
needed at all? Particularly since we have a climate change bill making
its way through Congress that will, at long last, if all goes well, put
a price on carbon emissions -- thereby giving low-carbon energy sources
what they desperately need, which is a fighting chance to compete with
fossil fuels on something resembling a level playing field. I thought
the whole idea behind cap-and-trade (which I strongly favor) is  to
capture the externalized cost of global warming pollutants, and then
let the market figure out how best to reduce greenhouse gas emissions:
regulation that would have a light touch but a profound impact.

But no -- with Waxman-Markey, CAFE standards, biofuels mandates,
subsidies for “green jobs” and the like -- the administration is giving us
a belt and a couple of pairs of suspenders, too. Much as I admire
Steven Chu, the energy secretary, do we really want to entrust him and
his staff to decide which battery technologies are likely to succeed
and which companies can most wisely spend that $2.4 billion? What’s
more, since the states and their legislatures are competing as well,
you can be sure that the likes of John Murtha and Robert Byrd will
weigh in on these investment decisions. Indeed, the states themselves
are already competing to subsidize battery makers, as The Journal notes:

" 'If you’re the place where the batteries are made,
there’s an opportunity to spin it into other things as well,' said D.
Gregory Main, president of the Michigan Economic Development Corp., a
state agency that has committed up to $400 million in incentives for
battery manufacturers.

"Kentucky is promising $110 million in aid and a 1,550-acre site, in
Glendale, that it assembled in an unsuccessful effort to land a Hyundai
plant several years ago."

Some of these batteries, by the way, could well find their way into
cars like the Tesla (sticker price:$109,000) and those made by Fisker
Automotive, a California firm that plans to sell $88,000 luxury-hybrids
next year. So tax dollars collected from working people and the middle
class go to subsidize rich boys and their toys.

Please don’t get me wrong. I think electric cars are a great idea.
The faster they arrive, the better. But judgments about which
battery-makers to finance should best be left to venture capitalists,
investors like Buffett (who bought 10 percent of BYD), big investment banks
and the like. They may be no smarter than the people at the DOE but at
least they are putting their own (or their investors’) money on the
line. If they’re wrong, they’ll be held accountable, or at least they
should be. You can be sure that some of them will be wrong, and that’s

This is why I respectfully take issue with Jesse “Watthead” Jenkins of The Breakthrough Collaborative, who with me is a lead blogger at The Energy Collective, a website that aggregates blogs about energy and the environment. Jesse’s a smart guy and a good guy, but he has more faith in government than I do
and so he favors substantially more federal investment in clean energy
research and development. If we’re talking basic research, that’s fine,
I suppose -- the private sector can’t be asked to underwrite that, because
the potential payoffs are so uncertain and long term.

But this battery program is explicitly about picking winners and
losers in one industry sector, which may or may not turn out to be a
real business. It reflects, I’m sorry to say, the Obama
administration’s faith that the best and the brightest Ivy-educated
government executives can figure out what needs to be done, and just
how to do it. I have no doubt that the people around Obama are smart,
well intentioned and hardworking. I dearly hope that they can, in
fact, figure out just what needs to be done. But if we learned anything
from Bush II, it is to worry about people in Washington who think they
have all the answers.